Getting control of personal finances and stopping creditors calls are a couple of benefits. This is a plan for the do it yourselfer and is easy to start and stay on track.
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Hello, I'm your host, Mr. Chuck, I retired accountant turned truck driver, I reduce my debt in a relatively short period of time, debt reduction, to achieve financial freedom takes commitment, confidence, determination. Benefits of debt reduction plan, getting control of personal finances and stopping creditor calls are a couple of the benefits. This is a plan for that do it yourselfer and is easy to start and stay on track. I have a link in my show notes as always to two articles that you can refer to if you want to see what they're saying. But before I get started, I generally focus on debt reduction plan. And don't get confused because there's other plans out there. That sounds similar debt relief, debt settlement, that management, that management may be a combination of everything, manage your debt. But debt relief is a lot different than debt reduction. So what is it debt relief is when you contact or have a counselor do it for you, your creditors, and you try to get them to lower the interest rate, maybe write off part of the balance, things like that, that is probably one of the worst things you can do. Because if you're doing a debt relief company that you're working with that guy counselor maybe may tell you to quit paying all your credit card bills and all your loan bills. And you pay them directly. And they put the money into an escrow course they take their fees out of that. And then they contact their creditors and try to pay off those debts or that that was a little money as possible, or maybe set up some type of payment plan with them over a period of five years, or a couple years, whatever the case would be. The creditors then may decide to I'm going to lower their interest rate, but I want them to pay the whole balance or make some type of counter offers, so they make a deal. The problem with doing all that is if you quit pan, timely payments on all your debt, what's gonna happen, they're gonna report you to the credit bureau, your credit rating will go down drastically, very highly reduced. So if you already have poor credit rating, it's gonna get worse if that's even possible. And what's the chances of them actually making some type of settlement, they may not decide to the creditor may say, a low your interest rate 1%. But you got to owe me the whole bill. But there's already charging at 20%. So they're not really doing much of a favor. And you keep on paying and you're not gonna make any headway because the interest has gone to accumulate faster than the debt relief counselor is making payments on. Because they're making very little payments, probably like what you would have been doing, but they're also not making timely payments. So your credit rating is gonna go in the tank, then we have debt consolidation, that has nothing to do with reducing your debt. It's only taking your debt and rearranging it and new debt. So you take, maybe it might be better, don't get me wrong. But in the long term of things, you're not getting rid of debt, you're just rearranging it, you're taking maybe that 18 20% interest credit cards, three or four of them. paying those all off. Now you have one debt for five years, a single payment, say at 8%, which is a lot less than what you was paying, but you still have the same amount of debt. You just have it in one place at a lower rate of interest, which is good, don't get me wrong. That's a good thing. Because now you'll be able to pay it down faster because you're paying a lot less interest. But you're Debt didn't go away, you still had the debt. And the bad thing about debt consolidation. If they don't require you to close these credit cards, you can use them again, and you get farther in debt. So you didn't really do anything to solve your problem, you just rearranged your debt made a batter, and that's not bad, you kept your credit cards, you keep on using them, and you're in the same place. But now you're in a worse place because you have more debt. If they require you to shut the cancel all your credit cards and close those accounts, then your credit rating is gonna go down temporarily because your debt to income ratio, you have less debt to your income. So your credit rating gonna go down. No matter what you do, it's kind of hurt. Yeah. As far as debt reduction goes. And I'm up to the point where I don't want any more credit, my credit to income ratio is really good lot income, little credit. But I don't get a good rating, because I don't have enough credit. But if you use the credit, that's bad, if you use too much as bad. So they want you to have a lot of credit available, but only use five or sign of us. So what's the what's the purpose doesn't make any long term sense. So I won't do it, I just stick out my 825 rating. And I'll never reach 850, which is the highest rating you can get. I'm happy with a 25. And all the creditors I talked to are very happy to give me money, which I don't do. So that's debt relief, which they tried to negotiate a deal lower what you owe lower your interest rate, debt consolidation, where you're refinancing it. Debt settlement is a process that lets you settle a lot of money a debt for less than what you owe. Not gonna do too well stop paying on your bills, that's bad. Creditors are not legally required to settle for less than you owe. And they're gonna stick to that debt forgiveness. There are some scenarios where a credit we're forgive the debt yo, and those incidents are increasingly rare. medical debt is one of them. The problem with that forgiveness, that becomes income to you on your federal tax return. So you got to pay taxes on that you did not pay, because you couldn't afford to pay it. Now you have a higher tax liability, how are you going to pay that if you couldn't afford to pay it to start with, and it's rare anyway, that management plan. In some cases, they also recommend and oversee debt management plans. These plans, you have a single payment to an account with your name each month, and that credit counseling agent uses money to pay bills on your behalf. So you have a counselor sets up an escrow account for you, when you send them a monthly payment or weekly or whatever you decide to do, then then they use the money in that account to pay some of your bills. And then the most extreme would be bankruptcy. But remember, you're not going to be able to file bankruptcy, he have to prove you made an effort to pay off this debt. They're gonna want you to get a counselor and have debt counselor, and they're all wants you to have some type of debt settlement or debt payment or something. And then when you do bankruptcy, it's gonna be over a five year period. So it's not gonna go away overnight, but eventually will and it does not get rid of back do taxes, child support, and it's on your record, I think, for 10 years. So I'm going to talk about that reduction. We know there's debt consolidation, there's some type of debt relief where they try to make settlements for you. And there's a debt management that kind of both of those together where they try to manage your debt through maybe some consolidation here, some debt relief here, whatever the case, but in order to do that, you need to have a professional, even nonprofits are going to charge you a fee. So let's look at Can I do this myself? And yes, you can. But how you get started, the first thing you have to do is figure out what caused you to get in this problem. What got you into the debt trap? Swelling two ways. He can get into the debt trap. The first way, which is probably the most common is you spend more than you make and use your credit cards to make up the difference. Maybe you did that for one month, because you had to buy clothes for your children to go back to school or whatever the case, get a car repaired, whatever the case you got a little behind, you use your credit cards to make up the difference for the money each couldn't afford to pay at that time. Doesn't matter how it happened, but it happened. Maybe it was a slow process over a period of months, even years where you gradually got a little bit behind on your credit card, maybe at first you're paying off the balance, then maybe you as almost paying it off, maybe $20 Here, a month, $30 a month short, then you got farther behind, then you start making the minimum payments on their credit card, then you got another credit card, you see how the snowball, that's one way. The second way is doing everything correctly, you're keeping track of your finances, then all of a sudden you have a debt problem. What happened if you didn't have an emergency fund large enough to cover whatever happened, or he didn't have an emergency fund at all, because you didn't think you need a one because you're always be able to pay your bills, and you pay them on time and you pay them off each and every month. And then an unforeseen event happened, you had to use a credit card to pay for it because you didn't have any savings. And it was a large bill. And then you couldn't pay off the credit card. And then you tried to pay off the credit card and you came up short on cash or use credit card to start covering other things. You see where I'm going, and a snowball. But the initial reason was you did not have an emergency fund, you did not have savings to help offset that unforeseen expense that might pop up whatever it is, has something you don't plan for but it happens. anything manmade is gonna break down sooner or later is a matter of when and not if. So your car's gonna need repair appliance in your home might need repair or even replaced. My sometimes it's cheaper to replace them nowadays. So you need to have an emergency fund, how much a minimum of $1,000 If you don't have anything to get started at least three months of expenses in case you lose your job, and you by three months, pay all your bills and still have time to get a job, or even more depends on what your comfort level is. But if you have nothing today, you need to start a savings account. And you need to build it up to a minimum of$1,000. That's part of my debt reduction plan. So that's how you got into debt. You got to recognize what happened. Maybe it was multiple events, maybe it was one event, maybe it was over a long period of time. But you have to realize you have a problem. And then what you do next is gotta know how big the problem is. Collect all your credit card bills, all your loan bills that you pay every month, put them together, put them in order, right and by highest interest rate first to lowest interest rate. Your mortgage should be the lowest your car payment should be somewhere down towards the bottom. Your credit cards are going to be the highest your personal loans, your payday loans, your pawn shop loans, your buy here, pay here, car loans, all those going to be at the top. How much do you owe? You have any idea? What's the total? Is it 10,000? Is that 100,000 300,000? What's the total dollar amount you owe? And then break that down by high interest? How much is they may total high interest how much is my mid interest? How much is my low interest? High interest is anything 15% above med entrance is like 12 The eight low interest is below eight should be your mortgage should be your line of credit. Your line of credit is variable, meaning as interest rate, interest rates go up your line of credit interest rates gonna go up. So that may not be a good deal a year from now. Maybe it started at 4% a year For now could be 9%. Keeping all your debt under control is important because you don't know what the future is going to bring. So you got it under control, you got it all in front of you, you know, the total dollar amount. Now what, how are you going to pay this, you know, you don't have enough income to pay all your bills every month, and then make payments on all these credit cards. And you know, I always pay $50 extra a month on every credit card, that's where you're getting them problems you got so far behind, you can't afford to make extra payments on those credit cards, because he don't have an emergency fund or your emergency fund is too small. First thing you got to do realize you have a problem, identify the problem. Look at the problem, add up know what it is what interest rate, you're paying credit cards, how many, how much when they're due, how much is do what's the minimum payment on each credit card, when what's the due date of these credit all that information, you need to have doubt, put it in a spreadsheet, that's the easy way to do it, write it down on a piece of paper, put it in order, then you have it in front of you, it doesn't take any remember, you don't have to remember it, you just gotta have it in front of you. So the first the first thing you got to do in my debt reduction plan, stop using credit period, no more new credit. So don't get any more loans. Don't buy any don't use your credit cards, don't do and loan consolidation on this particular point in time, because you have to get it under control. So quit borrowing money, quit using your credit cards. And number two, make the minimum payment on everything, whatever it is, only pay the minimum payment, do not pay extra. And the reason is, number three, start your emergency fund and build it up to at least$1,000. That's more important than paying $50 Extra on all your credit cards. Put that money. If it's $50 $150. If you have three credit cards, put that money in a savings account at your emergency fund. Once you build your emergency fund up to$1,000, you've done good, now you have an emergency fund. But you don't stop there, you keep building up your emergency fund until you have 3500 $4,000. Why? Because it may take you six months to do that. And you're still making the minimum payment, you're not using any credit, you're making the minimum payment, you're paying all your bills on time. If you're not doing all those things. And the first six months, he got to get your stuff under control, you have a bigger problem than what you realize. So once you build up your savings account, emergency fund, it's the same thing $4,000 You take anything amount over 1000 at be 3000. Apply it to one of your debt, highest interest rate debt first, if you have a credit card, that's a higher interest rate that has a lower balance and you'll be able to pay it off or pay it almost off. And it's got a little bit lower interest rate than another one. Do the one that you can pay off sooner, the better. You feel you're making progress. And once you pay off a credit card, that's one less minimum payment you're making. So a little bit more money is going to go into your emergency fund and your emergency fund or grow a little bit faster. And you keep doing that over and over. Don't use credit. Make the minimum on payment, apply excess money over$1,000 over your emergency fund to a higher rate interest card and then work your way down. If you have maybe two or three cards or close to being paid off, maybe you be able to pay off one or two cards, you'd be even better. As you keep doing this, your savings accounts gonna start growing faster, which means your debts gonna start shrinking little bit faster, which means your savings is gonna grow faster. And the time you get to the end, you may Oh, I remember when I was doing this, I was down to last $10,000 on my mortgage, and I paid it off like three months, two months, didn't take hardly any time. It's like, wow, I didn't realize I had that much money mortgage paid off. Instead of having another eight years, it was paid off in three months. It went really fast, it just kept going faster and faster and faster. It's it's like a steam locomotive starts out really slow. As a builds up steam, it goes faster and faster. This does exactly the same thing. debt reduction plan, that you do it yourself. I'll be back in one moment with my final thoughts. If you're interested in learning about an online software that helped myself get out of debt, it does tracking, budgeting, and keeps track of all your assets and all your debt. And even tells you how much and when to transfer money into your savings account, and how much and when to transfer money to your debt and which debts to pay off in order. First, it's not cheap. It's a one time payment. But it will definitely be an investment, something and yourself and an investment in your personal financial life. If you're interested, send me an email at reduce debt increase firstname.lastname@example.org. And I'll send you the information about this online software that worked great for me. So you're overwhelmed with your credit debt, credit card debt or whatever debt you're overwhelmed with. You're not sure what to do. Alright, here are your options. Debt Relief. That's where you get a counselor tonight tried to negotiate a lower rate of interest, maybe a lower balance with all your creditors. Debt Relief, you get some relief from your debt, that consolidation, you're not really getting rid of any debt, you're just putting it all into one loan at a lower rate of interest. Hopefully, so you can manage it and get it all paid off. That's good. But the bad if they don't rip if they require you to close your credit cards and get rid of them as bad for your credit rating. If they don't, and you continue using them using your credit card, you're gonna be in the same boat but worse because now you have even more debt. Debt consolidation is a good thing, but you have to have everything under control. First, before you consider doing then you have debt forgiveness. Not the only place you're going to get debt forgiveness would be from hospitals there you owe massive amount of money. And they know you'll never be able to pay it. Your insurance paid whatever they're gonna pay. And you're not going to be able to afford to pay whatever it is. You make some payments for a while and then it just goes away. The problem is was that forgiveness, they may report that to the IRS and that forgiveness is income to you say you owe a half million dollars to a hospital and you pay 50,000 And they give you debt forgiveness of 450,000. That's all going to be income in one year. You won't be afforded IRS bill and your state tax bill. So just Just a warning there. But that's rare and hardly ever have and you have bankruptcy. But in bankruptcy you have to prove that you couldn't pay your bills that you're unable to pay your creditors, and that you made some sort of effort to do so, before you could file bankruptcy. That's about all I know about it, you need to consult an attorney to find out more debt reduction plan is meaning that you have that and you're trying to reduce it, it can be done by yourself a do it yourselfer who can get this under control without any outside help you and your significant other can work together to identify the problem. Why did this happen? What do we owe? Who do we owe? How are we gonna get it under control? debt reduction plan does that for you, you get it under control by one, quit using credit to make the minimum payment on all your credit, three, set up an emergency fund and build it up to a minimum of$1,000. You continue building it up until you have at least 3500 to $4,000. At this point, don't get in their hurry to take that chunk of money and spend it because you're not gonna spend it, you're gonna apply it to one of your credit cards, one of your loans, something that you owe, that has either the highest rate of interest, or to the very first time, the only time you do this, something that you can pay off in full or almost pay off in full. So if you have a credit card, where you owe $3,000, build that up to 4000. Take the 3000 and pay off that credit card. And it may not be the highest rate, interest credit card paid off, because you'll make that feel that you're making progress that you've done all this and you made some progress. And you did because you got one less bill, one less credit card to pay. So you keep making the minimum payment. You don't use your credit, you continue building up your emergency fund, again, until you get another 4000 or whatever mount that you set, the whole time that you're building up this to the 4000 range, let's say you have a little bit larger and larger and larger emergency fund. If an unseen expense or something unseen happens, you have that much more available to pay for. So if your car broke down, that it was unforeseen, you have a relatively new car you want and expecting it and the transmission one out, but it does under warranty for whatever reason, you got two or $3,000 Bill, you have the money to pay for 99% of it. And then use your credit to pay off the remaining balance. So you don't really create it a little more debt. So it's under control, then you keep building up the merge sim first, get the 1000 and then continue building it up again, take the mouse over $1,000 and apply it to your highest interest loan credit card, whatever it is first, because after you pay off that very first one, we're concentrating on paying off the highest interest rate, loan, credit card, whatever it is, first and paying it down. That may take a little bit longer. But the less interest you pay, the faster you'll be able to pay off all this debt. So get rid of that high interest stuff first starts a fairly slow process and may take you anywhere from three months, nine months, maybe even a year to get that emergency fund built up to the $4,000 range. So you have $3,000 to apply to one of your credit loans, credit cards, whatever it is, that may take a while it's a slow process and may take you two or three months to quit using your credit cards. Because you always in the habit of doing that. It's a long, tedious The process the rewards at d n is that you'll have more money to do what you want to do, instead of being a slave to all those creditors, get your personal finances under control, get your debt under control, and you'll be happy you did so